Economist: Austin will recover faster than the rest of the U.S.

October 2nd, 2008

The office market will see very little new construction in 2009 and 2010 as a result of the recent credit crunch. But that means when the economy picks up in mid-2009 the region will see the next wave of rent growth, says Dotzour.
About 350,000 square feet of office space is likely to be absorbed next year, and 700,000 square feet will come online. Occupancy will be 84.7 percent.
Industrial development is seeing the biggest wave of construction in the history of Austin despite a 25 percent increase in construction costs last year, says Dotzour. He predicts ownership will begin to change hands as rents stagnate.
Dotzour predicts 250,000 square feet of flex/R&D space will be absorbed and that 400,000 square feet will be completed next year. The warehouse and distribution market will see 2 million square feet come online, and 376,000 square feet of that will be absorbed. Occupancy rate will be 82.4 percent and rents will be down 7 percent.
Local downtown retailers like REI, Whole Foods and Anthropologie have fared well but retailers will likely struggle in the coming year. Investor demand in retail is low and institutional investors have broken off deals as a result of being over-allocated in real estate, says Dotzour. The International Council of Shopping Centers predicts store closings in 2008 could reach 5,770 nationwide, the highest number since 2004. Unless gasoline prices return to under $3 a gallon, discretionary consumer spending will languish, Dotzour says.
If demand slows for local commercial real estate there could be a decline in construction material costs in the coming months, he adds.
"If this hypothesis doesn't hold water, and oil is still 125 bucks a gallon and steel costs what it does now, then we're in an entirely new era for living in the U.S. where things cost a whole lot more than they used to," says Dotzour.

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